Judge Attempts To Ignore Supreme Court, Backfires As Federal Circuit Takes Charge

Judge Rodney Gilstrap got a word-by-word lesson in grammar.

US District Judge Rodney Gilstrap attempted to ignore this year’s Supreme Court ruling that drastically limits where patent infringement cases can be filed. By simply picking an earlier case from 1985 with enough similarity to the case at hand, the nation’s busiest patent judge hand-crafted a “residency test” designed to keep the filing fees of patent troll lawsuits flowing. The scheme backfired badly when the Federal Circuit Court of Appeals took charge. “A writ of mandamus is appropriately issued, however, when there is ‘usurpation of judicial power’ or a clear abuse of discretion,” the top court for all patent-related cases writes.

Just a few months ago, the U.S. Supreme Court issued a ruling in the “TC Heartland” case, praised as an opportunity to rein in the practice of “venue shopping” to cherry-pick the most favorable jurisdiction. “Patent trolls” buy up patent rights, not to put the invention into use but to sue anyone who might be using it already.

Once they learned that by filing in the Eastern District of Texas, their cases would move quickly through the “rocket docket” procedures, the litigation floodgates opened. The ability to quickly move a case to trial puts tremendous pressure on Defendants to settle, even in cases with sketchy supporting evidence.

Gilstrap hears a quarter of all the patent cases across the nation and has a reputation for making rulings favoring the plaintiff. Recognizing the TC Heartland decision threatened to reduce the number of cases filed in his jurisdiction down to a trickle, Gilstrap used a case between supercomputer giant, Cray Inc., and defense contractor Raytheon to legislate from the bench a way out. Rep. Bob Goodlatte (R-Va.) and Rep. Darrell Issa (R-Calif.) both condemned the maneuver. Issa called Gilstrap’s decision “reprehensible.”

For “the benefit of other litigants and counsel,” Gilstrap described “four factors for inquiries into what constitutes a regular and established place of business in the modern era.” What mattered most, reasoned Gilstrap were, “physical presence, defendant’s representations, benefits received, and targeted interactions with the district.”

“patent trolls” buy up patent rights to sue anyone who might be using it already.

Raytheon was the one to originally sue Cray for infringement. Cray has no corporate presence in East Texas as required by TC Heartland. Gilstrap sided with Raytheon and agreed that the dispute could be shifted to the question of interpreting the phrase “regular and established place of business.”

He then agreed to their fantasy of an argument that “the house of Cray’s local salesperson, Doug Harless, qualified as such a place of business.” He denied the case being pulled from his jurisdiction.

The higher court disagrees and calls Gilstrap’s ruling a big mistake. “The district court misunderstood the scope and effect of our decision in Cordis, and its misplaced reliance on that precedent led the court to deny the motion to transfer, which we find to have been an abuse of discretion.”

In a written decision that drips with sarcasm, the appeals panel painstakingly gave Judge Gilstrap a word-by-word lesson in grammar breaking the Supreme Court language down to something a twelve-year-old could understand.

The house of local salesperson, Doug Harless, qualified as a place of business.

The statutory language we need to interpret, the Federal Circuit writes, is where the defendant “has a regular and established place of business. The noun in this phrase is ‘place,’ and ‘regular’ and ‘established’ are adjectives modifying the noun ‘place.’ The following words, ‘of business,’ indicate the nature and purpose of the ‘place,’ and the preceding words, ‘the defendant,’ indicate that it must be that of the defendant. Thus, §1400(b) requires that ‘a defendant has’ a ‘place of business’ that is ‘regular’ and ‘established.’ All of these requirements must be present. The district court’s four-factor test is not sufficiently tethered to this statutory language.”

Practically inferring that Gilstrap was smoking crack before he ruled that, “a fixed physical location in the district is not a prerequisite to proper venue,” they pointed out what the Supreme Court really said was there “must be a physical place in the district.”

Gilstrap’s interpretation they criticized, “impermissibly expands the statute.” Further spelling out, “the statute requires a ‘place,’ i.e., ‘a building or a part of a building set apart for any purpose’ or ‘quarters of any kind’ from which business is conducted.”

A home office for a computer salesman does not qualify. “The statute thus cannot be read to refer merely to a virtual space or to electronic communications from one person to another. But such ‘places’ would seemingly be authorized under the district court’s test.

The Federal Circuit verdict is reassuring to Defendants in similar cases, hoping to be switched to a less biased venue, that the long-sought reforms embodied by the TC Heartland decision have some teeth in them and can’t be easily sidestepped.